Private Mortgage Investing, What you need to know?  Is it for you?

Sabeena Bubber • November 21, 2016

This is a special article published to my blog, written by Dean Larson, COO of Northern Alliance Financial. If you have any questions, please contact me directly.  

Increasingly, Canadians are becoming more and more aware that traditional investments may not be their only or even best options anymore.   The average Canadian, particularly Gen Xers or Millennials, are less likely to blindly follow traditional investment advice from a bank, or even from that family friend, a financial planner, or insurance advisor.

The question is - what has changed?   Have people’s expectations changed?   Have investments changed?   Have our available options changed?   The answer to all of these is a resounding “YES!”   Historically, banks and insurance companies have created investment opportunities.   Consumer-focused investments included life insurance, bonds, mutual funds and other similar products with the object of providing neatly packaged, relatively conservative, accessible investments to the masses.

Today, the public has access to a myriad of investment options that would have once been relegated exclusively to very wealthy individuals or institutional investors.   One of these investment options is mortgage lending.

The mortgage market today can be divided primarily into the following categories:

‘Prime’ or ‘A’ Mortgages – These mortgages are for typical mortgage borrowers with good credit, regular employment and a down payment.   These low-rate mortgages are obtained primarily from banks, credit unions and monoline mortgage lenders (non bank lenders who are specifically in the mortgage business, and often funded by other big banks).

‘Alt A’ or ‘B’ Mortgages –.   These mortgages are designed for borrowers that fall just outside of standard mortgage qualification guidelines.   Some borrowers cannot prove self-employment income in standard ways, or provide non-standard down-payments, or have past credit blemishes. Institutional lenders and banks that are specifically focused on this type of lending typically have higher interest rates than ‘A’ lenders.

Private Mortgages – Private mortgages themselves can be divided up into two categories:

  1. Syndication / Direct mortgage- This is where an individual lends money to a specific borrower on a specific property.   The advantage to a lender is that they can dictate their return for that specific mortgage.   The disadvantage to the lender is that there are too many eggs in one basket, and if something goes wrong with that specific borrower or property, the individual that lent the money absorbs all the losses. Investment diversification is wise, even with mortgages.
  1. Mortgage Funds - These funds can take a variety of forms.   The technical term from a regulatory standpoint is “Mortgage Investment Entity”.   These funds can take form in a variety of structures such as   ‘mortgage investment corporation’, ‘mutual fund trust’, or even partnerships and corporations.   The differences between them largely have to do with regulatory and tax implications, although one could argue that a more regulated fund with greater checks and balances, further protects the investor. 

Advantages for an investor to invest through a fund rather than direct to the borrower include:

i) The investor’s money is in a pool with other investors and invested in a pool of mortgages.   So if a mortgage were to default and realize losses, the loss to fund is dispersed among the investors.   Typically a well-managed fund can have defaults without individual investors being aware, or suffering significant impact on their returns.

ii) The investor is not concerned about managing the investment, or regulatory issues.   The investor is not responsible for any reporting to the borrower, or any managing of defaults, or the payout of the mortgage.

So is it for me?   What’s the catch?   What’s the risk?

Mortgage funds create a great opportunity for an investor to earn consistent above-average returns.   As an investor in a mortgage fund you own shares or units of a Mortgage Investment Corporation (MIC) or Mutual Fund Trust (Trust).   That MIC or Trust holds real mortgages registered on title of the subject property.   It is not uncommon to see returns of 6-10% consistently on these types of funds.   In addition, these investments can often be held within an RRSP, TFSA, RESP, or a variety of other registered investments vehicles, providing the fund has completed the necessary CRA registration.

In spite of all of these positive attributes, not every mortgage fund in Canada has been consistently successful and some have had catastrophic failures.   So how does an investor assess comparative risk from one fund to another?   What does the investor look for in a fund, to allow themselves the opportunity to take advantage of the strong returns, while also matching a conservative to moderate risk tolerance?

Below are some key questions one should ask when assessing a fund.

  1. Who is managing the fund?   Do the principals and Directors of the fund have a solid and experienced track record in mortgages, lending, investment, and real estate, as well as running a business?   The people responsible for the fund should have credentials in each of these areas to show that they can make sound decisions when managing a mortgage fund.
  1. Does the fund offer a guaranteed return?   To an investor this may seem like a positive thing for a fund to offer, but it’s not always as good as it seems.   Various economic and other market factors have potential to affect the returns to investors.   If a mortgage fund guarantees 10% to its investors and economic and market factors cause the fund to underperform, what happens?   In actuality, the fund has to either:
  1. Continue to pay 10% to the investor, which erodes the investor’s capital by reducing share value.

or

  1. Make up the loss the following year - which puts pressure on the fund to generate an unrealistic yield and may compromise sound lending parameters. 

Many funds have been sunk by guaranteeing a return.

  1. What are the overall underwriting policies?   Most lending decisions involves a complex cocktail of the following:
  1. LTV (loan to value) – this is the loan amount that the lender will lend divided by the value of the property.
  2. Lending area – large city, small city, rural etc.
  3. Property types –residential, commercial, multi family, single family, bare land, new construction.
  4. Loan size – maximum and minimum amounts.
  5. Rate – interest rates go up and down in relation to risk. 

The above factors must be considered but there are complexities to ensuring that the criteria make sense in the right scenario. The tight rope of providing a solid return while not overextending risk is a developed skill.   The success of this will boil down to who your fund’s management team, and if they possess the skills and experience to recognize the reactive correlations of the a-e factors listed above.

In Summary, mortgages represent an excellent high yield opportunity for any investor to participate in the real estate and mortgage market, and to obtain returns that will often beat public markets. 

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Bank of Canada Rate Announcement Sept 17th, 2025

By Sabeena Bubber • September 17, 2025
Bank of Canada lowers policy rate to 2½%.  FOR IMMEDIATE RELEASE Media Relations Ottawa, Ontario September 17, 2025 The Bank of Canada today reduced its target for the overnight rate by 25 basis points to 2.5%, with the Bank Rate at 2.75% and the deposit rate at 2.45%. After remaining resilient to sharply higher US tariffs and ongoing uncertainty, global economic growth is showing signs of slowing. In the United States, business investment has been strong but consumers are cautious and employment gains have slowed. US inflation has picked up in recent months as businesses appear to be passing on some tariff costs to consumer prices. Growth in the euro area has moderated as US tariffs affect trade. China’s economy held up in the first half of the year but growth appears to be softening as investment weakens. Global oil prices are close to their levels assumed in the July Monetary Policy Report (MPR). Financial conditions have eased further, with higher equity prices and lower bond yields. Canada’s exchange rate has been stable relative to the US dollar. Canada’s GDP declined by about 1½% in the second quarter, as expected, with tariffs and trade uncertainty weighing heavily on economic activity. Exports fell by 27% in the second quarter, a sharp reversal from first-quarter gains when companies were rushing orders to get ahead of tariffs. Business investment also declined in the second quarter. Consumption and housing activity both grew at a healthy pace. In the months ahead, slow population growth and the weakness in the labour market will likely weigh on household spending. Employment has declined in the past two months since the Bank’s July MPR was published. Job losses have largely been concentrated in trade-sensitive sectors, while employment growth in the rest of the economy has slowed, reflecting weak hiring intentions. The unemployment rate has moved up since March, hitting 7.1% in August, and wage growth has continued to ease. CPI inflation was 1.9% in August, the same as at the time of the July MPR. Excluding taxes, inflation was 2.4%. Preferred measures of core inflation have been around 3% in recent months, but on a monthly basis the upward momentum seen earlier this year has dissipated. A broader range of indicators, including alternative measures of core inflation and the distribution of price changes across CPI components, continue to suggest underlying inflation is running around 2½%. The federal government’s recent decision to remove most retaliatory tariffs on imported goods from the US will mean less upward pressure on the prices of these goods going forward. With a weaker economy and less upside risk to inflation, Governing Council judged that a reduction in the policy rate was appropriate to better balance the risks. Looking ahead, the disruptive effects of shifts in trade will continue to add costs even as they weigh on economic activity. Governing Council is proceeding carefully, with particular attention to the risks and uncertainties. Governing Council will be assessing how exports evolve in the face of US tariffs and changing trade relationships; how much this spills over into business investment, employment, and household spending; how the cost effects of trade disruptions and reconfigured supply chains are passed on to consumer prices; and how inflation expectations evolve. The Bank is focused on ensuring that Canadians continue to have confidence in price stability through this period of global upheaval. We will support economic growth while ensuring inflation remains well controlled. Information note The next scheduled date for announcing the overnight rate target is October 29, 2025. The Bank’s October Monetary Policy Report will be released at the same time.

How Do You Port a Mortgage?

By Sabeena Bubber • September 10, 2025
Porting your mortgage is when you transfer the remainder of your current mortgage term, outstanding principal balance, and interest rate to a new property if you’re selling your existing home and buying a new one. Now, despite what some big banks would lead you to believe, porting your mortgage is not an easy process. It’s not a magic process that guarantees you will qualify to purchase a new property using the mortgage you had on a previous property. In addition to re-qualifying for the mortgage you already have, the lender will also assess the property you’re looking to purchase. Many moving parts come into play. You’re more likely to have significant setbacks throughout the process than you are to execute a flawless port. Here are some of the reasons: You may not qualify for the mortgage Let’s say you’re moving to a new city to take a new job. If you’re relying on porting your mortgage to buy a new property, you’ll have to substantiate your new income. If you’re on probation or changed professions, there’s a chance the lender will decline your application. Porting a mortgage is a lot like qualifying for a new mortgage, just with more conditions. The property you are buying has to be approved So let’s say that your income isn’t an issue and that you qualify for the mortgage. The subject property you want to purchase has to be approved as well. Just because the lender accepted your last property as collateral for the mortgage doesn’t mean the lender will accept the new property. The lender will require an appraisal and scrutinize the condition of the property you’re looking to buy. Property values are rarely the same Chances are, if you’re selling a property and buying a new one, there’ll be some price difference. When looking to port a mortgage, if the new property’s value is higher than your previous property, requiring a higher mortgage amount, you’ll most likely have to take a blended rate on the new money, which could increase your payment. If the property value is considerably less, you might incur a penalty to reduce the total mortgage amount. You still need a downpayment Porting a mortgage isn’t just a simple case of swapping one property for another while keeping the same mortgage. You’re still required to come up with a downpayment on the new property. You’ll most likely have to pay a penalty Most lenders will charge the total discharge penalty when you sell your property and take it from the sale proceeds. The penalty is then refunded when you execute the port and purchase the new property. So if you are relying on the proceeds of sale to come up with your downpayment, you might have to make other arrangements. Timelines rarely work out When assessing the housing market, It’s usually a buyer’s market or a seller’s market, not both at the same time. So although you may be able to sell your property overnight, you might not be able to find a suitable property to buy. Alternatively, you may be able to find many suitable properties to purchase while your house sits on the market with no showings. And, chances are, when you end up selling your property and find a new property to buy, the closing dates rarely match up perfectly. Different lenders have different port periods Understanding that different lenders have different port periods is where the fine print in the mortgage documents comes into play. Did you know that depending on the lender, the time you have to port your mortgage can range from one day to six months? So if it’s one day, your lawyer will have to close both the sale of your property and the purchase of your new property on the same day, or the port won’t work. Or, with a more extended port period, you run the risk of selling your house with the intention of porting the mortgage, only to not be able to find a suitable property to buy. So while the idea of porting your mortgage can seem like a good idea, and it might even make sense if you have a low rate that you want to carry over to a property of similar value, it’s always a good idea to get professional mortgage advice and look at all your options. While porting your mortgage is a nice feature to have because it provides you with options, please understand that it is not a guarantee that you’ll be able to swap out properties and keep making the same payments. There’s a lot to know. If you’re looking to sell your existing property and buy a new one, please connect anytime. It would be a pleasure to walk you through the process and help you consider all your options, including a port if that makes the most sense!

Is Refinancing Your Mortgage a Good Way to Consolidate Debt?

By Sabeena Bubber • September 3, 2025
If you're a homeowner juggling multiple debts, you're not alone. Credit cards, car loans, lines of credit—it can feel like you’re paying out in every direction with no end in sight. But what if there was a smarter way to handle it? Good news: there is. And it starts with your home. Use the Equity You’ve Built to Lighten the Load Every mortgage payment you make, every bit your home appreciates—you're building equity. And that equity can be a powerful financial tool. Instead of letting high-interest debts drain your income, you can leverage your home’s equity to combine and simplify what you owe into one manageable, lower-interest payment. What Does That Look Like? This strategy is called debt consolidation , and there are a few ways to do it: Refinance your existing mortgage Access a Home Equity Line of Credit (HELOC) Take out a second mortgage Each option has its own pros and cons, and the right one depends on your situation. That’s where I come in—we’ll look at the numbers together and choose the best path forward. What Can You Consolidate? You can roll most types of consumer debt into your mortgage, including: Credit cards Personal loans Payday loans Car loans Unsecured lines of credit Student loans These types of debts often come with sky-high interest rates. When you consolidate them into a mortgage—secured by your home—you can typically access much lower rates, freeing up cash flow and reducing financial stress. Why This Works Debt consolidation through your mortgage offers: Lower interest rates (often significantly lower than credit cards or payday loans) One simple monthly payment Potential for faster repayment Improved cash flow And if your mortgage allows prepayment privileges—like lump-sum payments or increased monthly payments—those features can help you pay everything off even faster. Smart Strategy, Not Just a Quick Fix This isn’t just about lowering your monthly bills (although that’s a major perk). It’s about restructuring your finances in a way that’s sustainable, efficient, and empowering. Instead of feeling like you're constantly catching up, you can create a plan to move forward with confidence—and even start saving again. Here’s What the Process Looks Like: Review your current debts and cash flow Assess how much equity you’ve built in your home Explore consolidation options that fit your goals Create a personalized plan to streamline your payments and reduce overall costs Ready to Regain Control? If your debts are holding you back and you're ready to use the equity you've worked hard to build, let's talk. There’s no pressure—just a practical conversation about your options and how to move toward a more flexible, debt-free future. Reach out today. I’m here to help you make the most of what you already have.

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